Fed must improve communication skills, Poole says

BOSTON (MarketWatch) -- Federal Reserve officials should talk less about the current state of the economy and more about their goals, St. Louis Fed President William Poole said Monday.

Speaking to the National Association for Business Economics, Poole said Fed communications are more than public relations, and should be seen as a way for the Fed to describe its model of the economy and where it would like the economy to go.

"Communications should focus on policy fundamentals of goals and the model of how the economy works," he said.

Poole made no comments about the current economy, and he gave no clues about the course of monetary policy. The Federal Open Market Committee will meet in two weeks to vote on whether to hold interest rates steady or to raise them.

Poole is not currently a voting member of the FOMC, although he would become one as an alternate in October if no successor is found for retiring Atlanta Fed President Jack Guynn.

Poole has long supported the Fed adopting a formal inflation target that it would announce to the public. "Policymakers need to state their goals clearly," he said, acknowledging many practical problems in adopting a formal target.

"I do not believe that uncertainty about the Fed's inflation objective is a large issue at present, but do believe that there is an opportunity to improve clarity," he said in prepared remarks.

Poole has been known for his hawkish views on the necessity for the Fed to keep inflation contained, but he gave equal weight to the other side of the Fed's policy mandate: full employment.

The Fed's credibility is at stake not only when it fails to keep inflation low, but also when it fails to keep unemployment low, he said. "A period of sustained excessive unemployment may create doubts about future policy," he said.

In an ideal world, the Fed would never have to comment on current economic events, because the financial markets would have perfect knowledge and rational expectations of the Fed's goals and its plan for getting there.

In the real world, of course, Fed officials find it no easy task to interpret the significance of recent events on policy. "It is all too easy to create an unintended market disturbance," Poole said.

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